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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Viscount v Smith re: Cochrane and ORB A.R.L. [2020] JRC 043 (09 March 2020) URL: http://www.bailii.org/je/cases/UR/2020/2020_043.html Cite as: [2020] JRC 43, [2020] JRC 043 |
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En désastre - re: settlement agreement - reasons.
(Samedi)
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Before : |
J. A. Clyde-Smith, OBE., Commissioner, and Jurats Crill and Averty. |
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Between |
The Viscount of the Royal Court of Jersey |
Representor |
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And |
Dr Gerald Smith |
Respondent |
IN THE MATTER OF THE REPRESENTATION OF THE VISCOUNT OF THE ROYAL COURT OF JERSEY
AND
IN THE MATTER OF DR GAIL ALISON COCHRANE, EN DÉSASTRE
AND
IN THE MATTER OF ORB A.R.L. EN DÉSASTRE
AND
IN THE MATTER OF THE INHERENT JURISDICTION OF THE COURT
Advocate O. J. Passmore for the Viscount.
Dr Smith appeared in person.
judgment
the Commissoner:
1. On 27th January, 2020, the Court approved the decision of the Viscount to exercise her powers pursuant to Article 26 of the Bankruptcy (Désastre) (Jersey) Law 1990 ("the Bankruptcy Law") to enter into a settlement agreement with certain parties in English proceedings and we now set out our reasons.
2. As Advocate Passmore for the Viscount said, the background to this matter is almost overwhelmingly complex, but it was very helpfully distilled within his skeleton argument, which we have in large part adopted for the purposes of this judgment.
3. On 24th November 2016, the Court declared the respective property of Dr Gail Alison Cochrane ("Dr Cochrane") and Orb a.r.l. ("Orb"), a Jersey incorporated company, en désastre pursuant to the Bankruptcy Law following an application made by Harbour Fund II LP ("Harbour").
4. The Viscount is a party to proceedings in England in which the extent of Dr Cochrane's and Orb's interest, amongst that of multiple other parties, in certain property is being determined. In particular, the following is in issue in the English proceedings:
(i) Whether some or all of the property in question belongs to:
(a) Dr Cochrane and/or Orb (as claimed by the Viscount), or
(b) Dr Gerald Smith (Dr Cochrane's former husband) as claimed by the Serious Fraud Office ("the SFO") and the Enforcement Receivers appointed as receivers of the realisable property of Dr Smith, or
(c) Certain former business associates of Dr Smith (or persons related to such business associates) pursuant to their claims.
Certain of the assets in question are companies, some of which are in liquidation. Claims to certain of the property are also made by those companies or their liquidators ("the Joint Liquidators").
(ii) Whether some or all of the property is held on trust for:
(a) The litigation funder Harbour, pursuant to a litigation funding arrangement with Dr Cochrane and Orb.
(b) Litigation Capital Ltd ("LCL"), which is purportedly ultimately beneficially owned by Dr Smith's brother, Anthony Smith, pursuant to a funding arrangement and pursuant also to purported property transfers to LCL.
(iii) Whether the following have an enforceable charge on the property:
(a) Stewarts Law LLP ("Stewarts") claim they are entitled to approximately £8 million of these funds as former solicitors of Dr Cochrane, pursuant to their solicitor's lien.
(b) Various former business associates of Dr Smith and Dr Cochrane (or business associates of Dr Smith's business associates).
5. There are also a small number of non-proprietary claims brought in the English proceedings by Ulrich Pelz, Philip Barton and Dawna Stickler. They do not affect the competing claims to the property and were not relevant for the purpose of the application.
6. The Viscount has no direct knowledge of these matters, and is reliant solely on the information she has been able to gather in this regard, including the documentation which has been disclosed through the course of the English proceedings. That information is limited by the following factors in particular:-
(i) The numerous structures and arrangements involved are highly complex, and there are various disputes of fact as to their legitimacy, composition, nature and purpose;
(ii) These proceedings stem from transactions which allegedly took place in 2003, and the history of the assets over time is highly complex and subject to numerous disputes of fact;
(iii) Both Dr Smith and Dr Cochrane, as well as a number of the other parties to the English proceedings (not including the parties to the settlement agreement) have been described by the English Court as having lied, cheated, abused the Court process and have been found to be dishonest; and
(iv) The documentary evidence is incomplete and/or cannot necessarily be taken at face value. There still remain many 'unknowns' which would need to be tested by cross-examination, with the limitations that are inherent in oral evidence.
7. The future costs of seeing the English proceedings through to conclusion are likely to be considerable, given the plethora of parties, issues, and contradictory evidence.
8. Of the rival claimants in the English proceedings, the following are not business associates of (or related to or claiming through business associates of) Dr Smith or Dr Cochrane:
(i) The Viscount
(ii) The SFO and the Enforcement Receiver
(iii) Harbour
(iv) Stewarts
(v) The Joint Liquidators
These are the parties to the settlement agreement ("the settlement parties")
9. The settlement agreement represents a compromise of the claims between the settlement parties inter se, and in broad summary they have agreed:-
(i) To settle all of the claims between themselves. No claims against third parties/non settlement parties are compromised by the terms of the settlement.
(ii) Subject to the final order of the English High Court determining ownership of the assets recovered both in and outside of Jersey, an agreed fixed distribution scheme in respect of the assets forming part of the English proceedings. This scheme provides for:
(a) Save as described at (b) below, the distribution of the net proceeds of realisation in the proportions agreed between the settlement parties of the assets in question after the deduction of certain specified expenses and costs. This is, subject (in the case of the SFO, Harbour and Stewarts) to a cap on the aggregate distribution that they are entitled to receive, with any balance that may be due to them over and above that cap being distributed to such of the settlement parties whose aggregate distribution does not exceed any agreed applicable cap;
(b) The Viscount to receive (in addition to the above) a sum equal to 50% of the sale price of the Steephill Estate situated in Jersey.
10. It is envisaged that Harbour will take the lead in and have the future conduct of the English proceedings including to trial on behalf of the settlement parties. It is also anticipated that Harbour may proceed if so advised with applications seeking to achieve summary disposal of the English proceedings and minimising the prospect of other parties seeking to claim the property that is the subject of the settlement agreement.
11. The settlement agreement anticipates the possibility of the settlement parties entering into further settlements with non-settlement parties where it is in the best interests of the settlement parties to do so, subject to the consent of all settlement parties.
12. If the English High Court determines that none of the assets subject to the settlement agreement fall to be distributed to any settlement party (either because none of the settlement parties' claims are established or one or more such claims is established but such claim is entirely outranked by the claim of a non-settlement Party) then the settlement parties have agreed that the distributions agreed will not take effect.
13. The settlement agreement is expressly made subject to various consents and approvals being obtained, including the sanction of this Court approving the Viscount's decision to enter into the settlement agreement.
14. By entering into this agreement, the Viscount will:
(i) Ensure that she receives a guaranteed proportion of the assets (if and insofar as the non-settlement parties' claims (or any of them) do not defeat entirely the claims of the settlement parties);
(ii) Remove the costs and uncertainty of litigating the claims with the settlement parties;
(iii) Resolve the bulk (in number and value) of the creditor claims in the respective désastres and ultimately streamline and reduce the cost of the administration of those désastres. In particular:
(a) The creditor claims by Harbour, Stewarts and the Joint Liquidators (worth a total of approximately £134 million) will be settled;
(b) Resolution of the creditor claims by Dr Smith, LCL, Mitre Property Limited, Phoenix Group Foundation, Minardi Investments Limited, Nicholas Thomas and Roger Taylor (cumulatively worth in excess of approximately £162 million) will be achieved in the English proceedings and the costs of doing so will largely be borne by Harbour at reduced costs to the désastre estates.
15. A number of creditors convened to the hearing, including Dr Smith, were also adverse parties in the English proceedings, and Advocate Passmore submitted that it would be inappropriate for them to be present when the merits of the settlement agreement and the advice obtained by the Viscount from two English counsel was considered, a procedure adopted by the Court in other contexts, where the Court is exercising its supervisory jurisdiction (see Barclays Bank v Bhander (Jersey Unreported 1998/152) and Re Esteem Settlement [1995] JLR 266). Initially, Dr Smith opposed being excluded from this part of the hearing, but he ultimately accepted that it was quite inappropriate for him as an adverse party in the English proceedings to have access to the advice given to the Viscount on the merits of her claims. The Court therefore sat in private for that purpose.
16. It follows that we will not set out in this judgment the advice given to the Viscount, other than to confirm that in the opinion of both counsel with which the Court agreed, the agreement reflects the best terms those acting for the Viscount could achieve, and in all the circumstances, it was a reasonable settlement.
17. Each of the settlement parties provided letters of support in respect of the application and all of the creditors were given notice of the application.
18. Of the replies received -
(i) Four creditors have confirmed that they either:-
(a) Have no objection to the application (Dominic Anciano)
(b) Support the application (Westward Consultants Limited)
(c) Wish to rest on the wisdom of the court (Christian Jegard) and/or
(d) Have no interest in participating in the proceedings (HSBC).
(ii) Two creditor claims have been withdrawn from Dr Cochrane's désastre estate:-
(a) Jacksons CI Limited, and
(b) Ports of Jersey.
(iii) Four creditors have objected, namely Dr Smith, LCL, Dawna Stickler and Ulrich Pelz, as referred to further below.
(iv) All other creditors have chosen not to reply/comment on the application. We infer that they are either neutral and/or have no objection to the proposed course of action by the Viscount.
(v) Dr Cochrane did not respond substantively within the timeframe stipulated for objections, but provided a letter on 4th January, 2020, setting out that she objects. This is dealt with below.
19. Dr Smith filed a detailed affidavit going into the complex and involved history of this matter, and at the hearing, took the Court through the history by reference to an additional bundle of documents. He complained about the conduct of the SFO and the Enforcement Receivers in the English proceedings. His central submission was that if none of the property under contention in the English proceedings constituted his realisable property, then the SFO would have no locus or entitlement, and should receive nothing. The purpose of his submissions was to show that as a matter of English law, none of this property could constitute realisable property.
20. The Viscount needed to explain, he said, why she considered each of the settlement parties had an entitlement to the property, so that the Court could determine whether entering into the settlement agreement was something that was desirable for all of the interested parties, rather than simply the settlement parties. How could it be reasonable, he said, for the SFO to receive a percentage, when it may ultimately have no interest at all? Why take away that percentage from the other creditors, without knowing whether it did constitute realisable property or not?
21. It was of considerable concern to Dr Smith that the Settlement Parties had not chosen to explain the rationale behind the settlement agreement. In the main, the settlement parties were public authorities, who had a duty to be open and transparent in the positions they have adopted, and the reasoning for such.
22. It was not for this Court to concern itself with the conduct of the SFO and the Enforcement Receivers in the English proceedings or with the merits of Dr Smith's submissions on whether the property in contention constituted his realisable property. The short answer to Dr Smith's objections to the settlement agreement was that it was an agreement between the parties to it only, and does not affect the claims of the non-settlement parties in any way. It was, in any event, subject to any final order of the English court concerning the parties' competing claims to the property in dispute.
23. As parties to hostile civil litigation there was no obligation upon the settlement parties, and in particular the Viscount, to divulge to the non-settlement adverse parties their views on the merits of the competing claims in those proceedings and the legal advice they had obtained.
24. LCL was under the misapprehension that the settlement agreement was dependent upon further negotiations with the non-settlement parties. It objected to the application on the basis that it was premature, suggesting that the Viscount would be better served negotiating with LCL and Dr Smith to achieve a global settlement, rather than seeking the Court's approval. Again, the simple point is that LCL's claims in the English proceedings are not affected by the settlement agreement.
25. Dawna Stickler objected to the application, but set out no basis for her objection. Ulrich Pelz said he did not consent to the application on the basis that the Viscount should have concluded that none of the assets belong to Dr Cochrane or Orb, and should not have become involved in English proceedings, which he said the Viscount had no reason to become involved in. It was plain and obvious to the Court from the material before it that it was appropriate for the Viscount to have become involved in the English proceedings.
26. Dr Cochrane essentially supported the objections of Dr Smith. It would appear that she had made an application to extend the time for serving a notice of appeal against her désastre (imposed some three and half years ago) and a directions hearing took place before Sir Michael Birt, Commissioner, sitting as a single judge of the Court of Appeal, on 14th January 2020 when the matter was referred to the full Court of Appeal, to be heard in the March sitting. An application to stay the progress of the désastre was refused.
27. The Viscount has the power under Article 26 of the Bankruptcy Law to make such compromise or other arrangements as are thought expedient with creditors or other persons claiming to be creditors in respect of any debts provable in the désastre, and does not need the approval of the Court to enter into the settlement agreement. As the Court said in Viscount v Booth [2017] JRC 215 at paragraph 14, the Bankruptcy Law gives the Viscount the right to generally manage the désastre and in normal circumstances, she would do so without recourse to the Court. Nevertheless, the Court was able to give directions when there is a need to do so. As the Court said in Booth v Viscount [2016] JRC 049, at paragraph 14, the Viscount is the Chief Executive Officer of the Court, and the Court clearly has a supervisory jurisdiction as to the activities of its Chief Executive Officer in a désastre.
28. The Viscount in this case was seeking the approval of the Court of her decision to enter into the settlement agreement because it expressly provides that it is subject to various consents and approvals, including the sanction of the Court, and because of the magnitude of the settlement agreement and its impact on the désastre estates. It was in the interests of both estates to identify any objections that any creditor may have sooner rather than later so as to avoid, as far as reasonably practicable, any late challenges when steps have been taken to implement the settlement agreement. The Court agreed that this was an appropriate application for the Viscount to make.
29. The legal test to be applied by the Royal Court when considering decisions of the Viscount in a désastre was set out by the Court of appeal in Booth v Viscount [2016] JCA 218 at paragraph 8, that is to say, whether the decision falls within the range of reasonable responses open to the decision maker.
30. The Court determined that the decision of the Viscount to enter into the settlement agreement fell well within the scope of reasonable responses open to her.
31. Whilst the Viscount was under a duty to get in the assets of Dr Cochrane and Orb, in this case, those assets comprise choses in action which are the subject of complex, costly and unwieldy litigation. As in all litigation, the Viscount has to take into account the merits of her claims, as advised, the evidential issues faced and the likely costs to be incurred (including the risk of adverse costs orders). The settlement agreement:-
(i) Resolves the bulk in number and value of the creditor claims, streamlining and reducing the cost of the administration of the désastre;
(ii) significantly reduces the cost of litigating with the non-settlement parties;
(iii) removes the cost and uncertainty of litigating the claims with the settlement parties;
(iv) ensures that she receives a guaranteed proportion of the assets if and in so far as the non-settlement parties' claims or any of them do not defeat entirely the claims of the settlement parties; and
(v) reduces the number of issues in dispute in the English proceedings and paves the way for possible settlement with some or all of the other non-settlement parties.
32. The Viscount had received and was acting on the advice of a firm of English solicitors, two English counsel and of her Jersey Advocates and in our view the settlement agreement was an eminently sensible way for her to proceed in the interests of the estates of the two désastres. For all these reasons, the Court approved the Viscount entering into the settlement agreement.
